The Reserve Bank of Australia has raised interest rates by one quarter of a percentage point to three point two five per cent.

While the change reflects the increasing strength of the Australian economy, there are fears the rise will damage business confidence and hurt first home owners.

With interest rates at a forty-nine year low of three per cent, it's been a good time to borrow.

First home buyers have snapped up low-end properties in record numbers, while businesses and private investors have slowly returned to the financial markets.

But the better than expected economic recovery has prompted the Reserve Bank to act ... Today raising interest rates by one quarter of a per cent.

The increase will add about forty dollars a month to the average mortgage of three hundred thousand dollars.

The Australian Chamber of Commerce says rising business and consumer confidence doesn't accurately reflect improvements in actual business conditions.

It's worried the rate rise could lead to a 'W' or double dip recovery.

But businesses in the A-C-T should be protected.

Industry leaders say almost all operators will have accounted for a rate rise and today's announcement will make little difference.

Rates are tipped to rise substantially over the next twelve months and there are fears first home buyers not prepared for the additional cost could get caught out.

Australia is only the second industrialised nation to raise interest rates this year.